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 What Are The Benefits And Risks Of Investing In REITs?

The main benefit of a real estate investment trust is that they don't pay corporate taxes as long as a minimum of 90% of all the income is divided between the investors.


Additionally, in the last six years, REIT's have become a more interesting security than traditional stock, since they have provided a higher return over investment (ROI) than the stock market.

For this reason they have become one of the favorite long term choices of investors for leveraging their portfolio of securities.

The main risk is the possibility that the REIT doesn't give the dividends you expected. That's why its very important to check the record of the chosen REIT. It will give you a lot of information regarding the quality of their work and the professionalism of their employees.

How Do I Pick Up The Right REIT?

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You need to make a bit of REIT research. Start with the online rankings you may find in the internet. Once you are more familiar with the terms, make a list of the REIT's that adjust to your needs. Then check for their revenues and yield.

On the other hand, you should also check the cap REIT you are looking for. You will find micro, small and large cap REIT's out there, each full of advantages and disadvantages. Although micro cap REIT's could generate bigger dividends, the risk is higher than a larger cap REIT, who can be more conservative on their property investment.

What limit defines the size of the REIT? It is considered that a corporation with less than US$250 million in assets is a micro cap REIT, while a corporation whose assets fluctuate between US$250 million and US$ 2 billion are considers small cap REIT's. As you can see, their qualification seems unfair considering the size of these corporations.

Although, the amount of the assets shouldn't be the only thing to look. The track record of the corporation is very important since it shows the possible investor how serious and efficient they are on their compromise with their shareholders.

So, if you want to invest in real state but don't want to go through the long and tortuous process of buying a property and managing it, then the solution is investing in Reits. You will not have to worry about the maintenance of the property; your only worry will be the dividends. Consider that in 2005, there were some real estate investment trust corporations that had a ROI of 30%. Where in the market could you obtain such a figure?
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